Just bought the game. disc 1 will not be read so I cant install it. if I put disc 2 in, I can see the icon appear, so I know it will be read once it should be

disc 1 is not scratched or anything. what can I do? should I exchange the copy and try it with another one?

It requires the bloatware drm called steam so you can just download it from there.

Yes try to exchange it for another copy. That being said most places will not take back open software,
but if you can get them to test it in store where you got it & it does the same there I'm sure they will work with you and give you another copy.
Edit: sometimes you can run into a bad burn copy like this that is unreadble. Heck the disk may even be blank, it does happen.
Got labeled but not burned or just a bad DVD disk to start with. coaster...

got another copy. it works. now the product key doesnt... I already have contacted steam, hope they can help me

Did they give you a whole new copy or just disc 1?
If only disc 1 then the key probably doesn't match the new disc you have, as the key is different for each package.
Edit: at install it runs a check to see if the key you enter matches the one within the package your trying to install.
Its much like a Windows install disc, I can't use your key with my copy or mine with yours.